Dollar General comes back to market

After valuation estimates resulted in some raised Street eyebrows, discount retailer prices IPO at low end of range

Email | Print By Geert De Lombaerde

Middle Tennessee's third initial public offering of 2009 is just about in the books now that Dollar General has slapped a $21 price on the more than 34 million shares it and its majority owner are selling.

Dollar General's shares – which will trade under the DG ticker as they did before the company went private in mid-2007 – were priced at the low end of the expected range. Dollar General and its private-equity parent Kohlberg Kravis Roberts stand to take in about $445 million and $239 million, respectively, after the offering's costs are subtracted. The IPO's underwriters, who are led by Citi, Goldman Sachs and KKR itself, have the option to buy another $107 million worth of shares from KKR.

That range, published earlier this week, had raised some eyebrows in the investment community. Observers unanimously praised the results posted by the executive team led by CEO Rick Dreiling, but a good few wondered aloud about the valuation, which is almost twice Wal-Mart's price-to-earnings ratio.

One IPO market watcher speculated Thursday that the $21 price is an attempt to create a first-day pop in Dollar General shares that will engender confidence in the plans of several private-equity firms to bring to market other portfolio companies.

To view the company's roadshow leading up to Thursday night's pricing, click here. In the video, you'll hear Dreiling talk about the company's increasingly affluent customers – about 22 percent of them make more than $70,000 per year – as well as its operational improvements and plans to open 600 stores per year going forward.

"We are not a story about the economy," Dreiling said. "We offer price parity with Wal-Mart and the convenience of drug" stores.

Dreiling also will want Dollar General to become a story like the two other Nashville-area companies who have gone public this year. Both Emdeon (Ticker: EM) and Cumberland Pharmaceuticals (Ticker: CPIX) sold shares in August, but have since lost ground to the broader market. Emdeon's shares have lost 8 percent of their value, Cumberland's more than 20 percent. Since mid-August, the S&P 500 Index is up 8 percent.